EntreLeadership - These Risky Decisions Could Sink Your Business

Episode Date: November 27, 2023

Today we’ll hear about: •       A family member that’s stealing from the business and yelling at family members in front of the rest of the team •       What you should take into consideration when integrating your remote team into one location •       A business owner who is considering suing one of their former clients for $1 million  •       The six reasons why Dave Ramsey never recommends partnerships Links mentioned in this episode: •       The EntreLeadership Podcast •       EntreLeadership Elite •       Have a question for The EntreLeadership Podcast? Leave a voicemail at 844.944.1070 or submit your question for a chance to be on the show with Dave Ramsey: https://www.entreleadership.com/ask Links mentioned in this episode: •       The EntreLeadership Podcast •       EntreLeadership Elite •       Have a question for The EntreLeadership Podcast? Leave a voicemail at 844.944.1070 or submit your question for a chance to be on the show with Dave Ramsey: https://www.entreleadership.com/ask Start growing in business and leadership with the EntreLeadership Newsletter. Sign up to receive tactical tools, advice and resources in your inbox every week: https://bit.ly/3IRWnsL   Support our sponsors: •       NetSuite •       BELAY •       Payority •       Trainual Learn more about EntreLeadership Events: •       EntreLeadership Summit •       EntreLeadership Master Series Learn more about EntreLeadership Coaching: •       Elite •       Advisory Groups •       Executive Coaching •       Workshops Find out what stage of business you’re in and what you can do to level up with our Stages of Business Assessment Listen to all the Ramsey Network podcasts anytime, anywhere in our Ramsey Network app: https://apple.co/3eN8jNq Learn more about your ad choices: https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy: https://www.ramseysolutions.com/company/policies/privacy-policy Learn more about your ad choices. Visit megaphone.fm/adchoices

From the headquarters of Ramsey Solutions, this is the Entree Leadership podcast, where I take calls from leaders like you about what it takes to win in any stage of business or leadership. I'm Dave Ramsey, your host, with over 30 years of experience in the trenches, scratching, clawing, digging, making a mess, cleaning it up, and occasionally taking home the trophy. That's what we're here for. We're here to help you move your business along. If you're looking for a dry theory-based think tank, you're in the wrong place. We don't do that. This is Leadership with Boots on. We get her done every day, boys and girls. I deal with the stuff we talk about here all the time.

I did today. Open phones here at 844-944-1070. You call, you leave a voicemail, and we'll put you on the air maybe after that. We'd like to. We'd like to hear your question. Entreleadership.com slash ask, and you can leave the eweller. essence of your question there, and we'll get back to you and make you a caller on the show as well. Ben is with us in Cincinnati.

Hi, Ben. Welcome to the Entry Leadership Podcast. Hey, Dave. It's great to be on here. Honored to have you, sir. What's up? So I've got a family-owned engineering firm with about 12 employees, including my father and my sister. And we do revenue of about two to three million dollars a year.

Wow. And my main question is, is my dad's looking at me to take over this business. in the next five to eight years. And my sister's kind of been a problem in the business recently. Most recently, she has kind of taken some money, used the company credit card for things that are not, business expenses. She's very disrespectful to my father at the business,

yelling at him in front of him and yelling at him in front of other employees as well as... How old is she? She is 32 years old. What is her problem? I mean, you don't get to do that. other places. Well, that's kind of what I thought, and she actually got fired from her job prior to working

at our family business. We're showing a plate repeatedly. Is she an engineer? She is not. She runs part of the testing lab at the firm. Okay. So she got fired, so your dad gave her a job? Essentially.

I mean, she does the job well when she does show up on time and actually. No, she doesn't. No, she doesn't. She's a butt. She might do the actual work well, but she's not a good employee. if she was a regular employee, you would have fired her. Well, that's where I would agree, but I feel like... No, period.

I mean, if you had anybody else in the firm acting that way, you would have fired them or your dad would have fired them. I would agree. And any normal business would. We don't do yelling and screaming and stealing money around here. Oh, my gosh. Okay, so what's the plan? Your dad wants you to take over the business, but you're supposed to inherit this relational problem as part of it, right? Correct.

And that's what I'm not sure how to navigate that. I'm only 25 years old. How old and your sister is your older sister then? Correct. Okay. All right. Do we have a timeline on when your dad wants you to take this over? So ideally I would start that process in the next five years or so and then he would be out probably within the next eight to ten, maybe 12.

Okay. Well, there's no rush on dealing with your sister harshly because there's no shortage on time. It's not your issue for five years. But once the transition begins, it becomes your issue. So you've got five years for this to work itself out. It probably won't. So I can give you some ideas, okay? But so the guidance is this.

If I were you, okay, my son went to work. for us 12 years ago. He worked for a whole bunch of different people inside of Ramsey, not reporting to me. During that time, he, you know, was one of our top salespeople. During that time, he went into a certain digital area and helped him turn it around. The last thing he did is took over another business unit and increased its profitability greatly during the time he was in there. And so he earned his stripes and then last January we made him the president of Ramsey. I'm the CEO and he and I are now working together. We're now running it together and he reports to me for the first time. But during all of that, there was no he nor Rachel nor Denise who also sits on

our operating board have misused company funds or yelled or screamed at anybody. Okay. Now, So this is stuff we've talked through, though, and dealt with, not because of the same issues. But my friend Henry Cloud gives a great analogy or great metaphor that has helped us, and maybe it'll help you guys. Okay. In operating a family business, you guys need to learn to wear hats. Now, are you an engineer? Yes. Okay.

So your hat at work is that you're an employee engineer of an eight-person engineering. firm and you do engineering. And that's your job. That's it. You don't have any rights other than that. You don't have any expectations other than that. You get paid what engineers get paid and you do work like engineers do work and you're respectful to your teammates and you listen to your CEO, which in this case happens to also be your father. But he's also your boss. He wears the boss hat. You wear the engineer hat. And you treat him at work like he's the CEO because he is. And he treats you with respect like he does the other engineers. And he pays you as well, but not light ears more as the other engineers.

So everyone at work has a very clear role. You're wearing a hat. It says engineer. He's wearing a hat that says boss. And you are expected to behave in that way. He's expected to behave in that way. I don't speak to my children at Ramsey. using my dad voice as an example.

Okay. So if I'm having a discussion with Rachel, I'll have the, as a Ramsey personality, launching a book, it's the same tone, the same passion, the same direction that I would give John Deloney as I would give Rachel Cruz. You following me? Understood. Because I'm at work wearing this.

Now, you need to teach your dad this because your dad sucks at this concept. You follow me? Okay. I follow you. I would agree. And then he can sit down, and maybe you can join if you want. You probably shouldn't say anything if you join. But you can say, hey, we're learning a new concept here, sis.

And the concept is hats. When you're at work, I'm going to treat you like a team member. And you're going to treat me like the CEO. And you're going to treat other team members like team members, not like you're the daughter of the owner who's some kind of entomable. titled, heiress, princess, which jerk lady, right? Right. And you're not going to do that anymore.

Okay. So you're going to act like a high-quality team member, and you're going to get paid like one, and when we're at work, I'm going to treat you with that respect. You're going to treat other people around here with that respect, and you're going to treat dad like a CEO and brother like a fellow coworker, because brother's an engineer, and you run the test lab. He's not your little brother at work. He's a fellow co-worker that's an engineer.

He might be smarter than you. He probably is. Don't say that. I'm kidding. I'm going to go that far. I'm kidding. I'm messing with you. But you follow me?

Okay. So we're wearing hats. Now, everybody, when we go home and him Thanksgiving dinner, you know, we can have a good political argument or COVID discussion or argument or whatever it is we do at Thanksgiving. Because we all got to argue about something at Thanksgiving. And we take our hats off and it's, you know, it's Papa Dave and we're, you know, it's Papa Dave. Rachel the conspiracy theory girl and, you know, we have Thanksgiving dinner, right? And we have fun and I'm, I got babies bouncing everywhere and we got too many dogs in our family and all this and they're running around everywhere.

And I'm, you know, and I kind of sit in the background just watch the circus at this point because I'm really not in charge. But I change hats. I put the Papa Dave hat on at home. Okay. Does that make sense? And so, and what that is. does, then it gives your dad permission once he sets the table this way to hold your sister accountable

to reasonable behaviors at work. And that is, we don't steal money, we don't misuse funds, and you definitely don't yell at people. You would get fired anywhere else for doing that, and you will get fired here for doing that. And if he won't set that table, she's going to be hanging around there, and it's going to get darker and darker and darker, and the thing that you inherit it is going to be a toxic mess. You're going to lose productivity. You're going to lose your talent because nobody wants to hang out with the witchy eras who's living on the edge at all times and ready to slit your throat and has permission

to do so because dad's sanctioning it by not dealing with it. And you're going to inherit this, and it's not going to get better. It's going to get worse. It's going to get black and dark and ugly by the time you get a hold of it. So if your dad will go ahead and take care of this now, your sister either will straighten up or she won't be there by the time. five years comes along. Understood.

And that's really just adults being functional adults. So what we've also learned, Ben, and this is one last thing, grenade to throw in the middle of this, and you can do with this what you want. I'm not going to ask you about it because it's unfair. I've already poked around in your stuff enough. But we found with family businesses that the family business is only as functional as the family is. If the family has dysfunctions, they will show up in the business.

in something about your dad and his daughter's relationship is dysfunctional, codependent, he allows her to do stuff, get away with murder, whatever it is. And now that has invaded the business space. And I'm guessing, I don't know, I may be wrong, but we generally find that as dysfunctional as the family is, the business, family business is also that dysfunctional. As functional and good boundaries and good healthy conflict, I mean, the Ramsey's argue. Don't misunderstand. We argue.

We argue at business about business. stuff. Rachel and I in an operating board meeting go at it sometimes, but also go at it with other operating board members. We argue around here. We do healthy conflict. We're arguing about which play to call to put the ball in the end zone and win the Super Bowl. But we're not arguing about, you know, somebody having a temper fit. That's just, we just don't do that crap. It's just, it's not an option here. Nobody wants to work with people like that. So that's what you get into. Ben, it's a really good question, especially 25 years old, you're very wise to look at this now. If this does not get fixed in five years, by the time it gets handed to you, you're not going to want the business.

This is the Entree Leadership podcast. Hey, listen up, Small Business Owner. I don't care which stage of business you're in. If you're doing it alone, you're doing it wrong. You need people in your corner because owning and running a business might be the hardest thing people do. That's why I want you to sign up for Entree leadership elite. Elite is our digital membership that will equip you with a plan to accelerate through the stages of business all away from treadmill operator to legacy builder. You won't have to wing it by yourself anymore because we'll use your elite membership to teach you how to hire the right people and delegate the right things to them, plus a ton of other leadership skills.

Your elite membership will also open doors to connect with like-minded business owners through an exclusive Facebook group and regular e-coaching sessions hosted by our Entree leadership coaches. Bottom line, you can stop doing business alone, and you should stop doing business alone. Entree Leadership is your way to do that. Check out Entree Leadership Elite by going to ontrielesship.com slash elite and join today. I'm Dave Ramsey, your host. Thank you for joining us, America. Nate is next in Iowa City, Iowa.

Hi, Nate. Welcome to the Entry Leadership Podcast. Hey, Dave, how's it going? Better than I deserve. What's up? Awesome. Love to hear it. Okay, so we run a small media company that just started a few years ago.

We have a staff of 13 people. Three of them are full time. Most of our staff contributed to the company before we made any money. We only started making money a couple years ago, and people were just around because they were very passionate about the mission. and have really done an excellent job. And we've grown a lot in the past couple of years on a top line basis, and we're to the point where we're really maturing as a company

and trying to become a real company from a group of volunteers having some fun together. And the tough thing is, is of the 13 of us, four of us are in the Iowa City area. The rest are across the U.S. And you don't need to convince me that office is important, and the in-person collaboration is important. and we really believe that, but we don't know how to kind of shift the culture of the company or even have an office at this point. So I guess I'm looking for some wisdom. Would this be a point since we're still seeing a lot of growth to perhaps relocate to a more attractive place from a tax basis or talent recruitment basis?

Or is there anything else that you would advise us on for? So you do not have a physical office? Nope. Everyone works from home. Okay. And how much money are you guys making? What's your top line? Last year was a little over a million.

And so now everyone is getting paid. There are no volunteers. Yes, correct, yes, correct, correct. And there's 13 people in a million dollar top line. Yep, three full-timers, 10 part-timers. Okay. And the part-timers are doing what? What do they do?

Yeah, yeah. So we create content, and we write news. And so what we like is we prefer, and our writing step is about seven or eight of those. And so we prefer having more part-time people in that role for diversity of perspective and diversity of views and diversity of political leanings so that we can just have more collaboration. It's not unusual at all in those situations just to use freelancers. Yeah. Rather than part-time.

I mean, it's the same thing. It's just a matter of status. Yeah, I guess the question is more around on the business side as we grew up and expand there. We're not really interested in hiring part-time business people. When we view business side of it, we'd rather have, you know, one full-time person than two part-time people. And so as that team expands, which we need to do in the next 12 years, where I'd say a little understaffed right now, how would you think about 12 years? No, I'm sorry, 12 months. Okay, okay, it makes more sense.

Whoa. All right. Okay, so what do you think, if your dreams come true at the end of 12 months, what's your staff look like? On the business side, we maybe have five to six full-time people, and the writing team really doesn't need to expand at all. Okay. So you would have, but right now you have three business people? We have really one full-time business person, and then two part-time business people, yeah. Okay.

Where would you move? We could have the flexibility to move somewhere that would be appealing from a talent recruitment perspective. So, you know, Colorado, there's also the, you know, since we're a pastor entity, a benefit of somewhere like Tennessee or Texas. I guess that's what we're trying to balance is how important is that versus staying put and how can we foster a good culture while we are all, you know, not in an office together. Well, you're going to be bringing the office together or you're going to struggle with the culture. That's period. Zoom even called their people back. So you've already made that, we've already made that assumption you and I in this conversation, all right?

So the only question is, are we going to do it in Iowa City or you're going to do somewhere else? And you need to decide that, I guess. And I don't know. I mean, can you recruit enough business people to do the business you want to do in Iowa City? I don't know. I assume you can. But in a larger, more metropolitan area, three or four times that size, would you have a larger pool to pull from?

Yes, you would. And it would be easier to attract people to come to live there. kind of thing. So yeah, you need to decide if you're going to make the move or not if it's worth it. And then you need to look at the overall business model of the part-timers and full-timers and all that, which just sounds like you've kind of parsed that through in your mind on how you're going to do it. And so, you know, once you make that decision, then you go get an office and you tell the business people we're going to be here. And the part-time, and you're going to allow the part-time model to work from home and collaborate with technology, right? Yeah. So, yeah, yes. And so what questions should we be thinking through in making that decision of whether it's, hey, let's stay here or, hey, let's move there? What are the sort of questions you would think through?

Where I want to live and raise my family is primary. Number two is can I accomplish my goals if I stay here from a business perspective? and meaning can I, okay, what are the big blockers here? It sounds like it's a pool of talent. Am I going to be able to get the right kind of people to work here to do the things I want to do in the next 12 months, 24 months, 36 months, in order to open an office and start building the business side of this media operation out and make this thing more and more and more profitable and get a little more structure to it, more processes and systems for it so it runs smoother. And, you know, you move from Pathfinder to Trailblazers is really what we're talking about.

And can I do that feasibly there? And if you've said, okay, I don't like the tax base. I think the talent base is too small. The population center is too small to have the kind of talent I want. And I think I can find a place that I would love raising my family that's different than this, then you would move. But an example that where we didn't move was Ramsey. In the early days, I was in the talk radio business primarily. And, you know, we're growing one of the largest talk radio shows in America.

And, you know, we've got 680 stations now that carry the Ramsey show. But in those days, it was 100. And the people in the talk radio business kept telling us, you know, if you want to be a national figure in the talk radio world, you're going to have to live in New York or L.A. Because that's where it's always done. And I said, well, I can do New York and L.A. for about three days. And then I'm coming home. So we're not doing that. If you live in New York or L.A., I love you. That's fine. I'm not living there.

And I love Nashville. I grew up in Nashville. I'm not leaving. Nashville is a tech center. It is a center for talent. So technology and talent, especially around the media world, is all over the place here. It's a major center for that. It's not L.A. and it's not New York. Thank God. And so we're not leaving. And so it turned out, I was right. I could do what I needed to do here. And I whipped the people's butt that said it couldn't be done unless I left here and went to LA or New York. So that's an example. But what I did there was simple.

What you and I are doing right now, we analyze, can we do it from a talent pool perspective? Well, I knew there's people that run sound boards and, you know, sound booths and radio and broadcast things and recording Nashville's country music. It's, you know, music city USA for God's sakes, you know, so I've got the talent pool here to do the technical stuff I need to do. I knew I could attract the business. It's a major metro area. The tax base is great. I love the value system and the people. It's where I grew up. So I stayed, even though I had people saying you couldn't do it. So you've just kind of got to make that type of a call, Nate. And I don't know. I don't have enough strong opinion on your situation

as to whether you can do this. I think what you've got to have in your head is can I visualize running a much more traditional business than you have run to this point in an office with six or eight business people running systems while we have these farmed out part-time content collaborators contributors that are out of the office can I visualize running that and growing that kind of a business with that kind of talent in Iowa City I could visualize doing our show in Nashville not having trouble now the only question question was the outside world did they perceive us as doing the show from a double wide and some of them are so stupid they still do because of stereotypes of the Southerners and so forth.

But I wear shoes and I'm not in a double wide. So, you know, but you just got to, you know, you kind of got to get past that part of it. Your customer base is not, they don't care where you are in your case. And our customers were radio stations and people and that they perceive us as being a big enough deal to put us on instead of whichever other talk radio show we were competing with. So that's what you're looking at. You just got to do an analysis of that, and it really is kind of a thing. You might sit down with your top person and talk this through. But if you can't see in your mind our thing the way we're thinking about it being a big deal in Iowa City, then it's time to go. Or it's time to not do it, one of the two. If you say, I don't want to live

anywhere but there, then you probably aren't going to do it if you can't see it happening there. I could see us doing what we have done here. I knew we could do it. So that's what you've got to work through. And it's what are the blockers and can I knock them down? And really it is. Value system where I want to raise my family. Tax issues.

And can I draw the talent in that I need to draw the type of talent, put them in the room so we can get this done? This is the Entree Leadership podcast. Thanks for joining us. America, this is the Entree Leadership Podcast. I could use your help if you want to help us. If you like this, please click the share button and share it with someone. Please click the subscribe button, the follow button, and follow us, subscribe us, depend on podcast, YouTube, whatever it is, and let people know that you are following this and it automatically dumps in your inbox.

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We appreciate you. Will is with us in Denver. Hi, Will. Welcome to the show. Hi, Dave. Thanks for having me. Sure. What's up?

So I am a managing partner and founder of two businesses. The first is an entertainment law firm that does about 1.5 annual growth. And then the other is a digital advertising firm that does about $4 million a year. I have about 17 staff members that are full-time. So the question I have is like, when is it better to walk away from money owed to us to preserve an industry-wide reputation when particularly, in both those fields, industry is everything for kind of our level of service business.

Okay. I'm not sure I've got a full grasp of enough to get this. Sure. So how much money is owed to you? So there's a party that owes this just under a million dollars. And so it is... Why are they not? Why would it hurt your reputation to go get the money that is owed to you?

because they are entrenched in the space fairly substantially and they are very, very, very loud about everything. And so unfortunately, they're what we call bad actors in what they do. And they would twist kind of the facts of it. And then on top of that, having lawyers sue clients is never a, never something that I have ever wanted to do. And so it's a tough in what we perceive our reputational damage would be trying to go after that. And then on top of that, it's even if there's anything to get from them. Because if they're not paying us, who else are they not paying? Yeah, that's one of the analysis.

Is this worth the trouble from an actual financial standpoint? From a principal standpoint, is it worth the trouble? and I don't hear you standing on principle on this, like I'm going to drive this to ground just because I'm here, you're going, you're being very practical about it, which is fine, I don't have an issue with that at all. There's times to do that. And if you're going to be very practical, then you go,

hey, do they have a million dollars? If they don't, then suing them and getting a million dollar judgment's not even worth the paper it's written on. You know that as an attorney, right? Right, right. You can't execute on a judgment where there's no asset base. do is that also, as a lawyer, I have a partner who is tied to these individuals on top of it. And so it's that they're like childhood friends and that type of,

um, that longstanding relationships there. And, and so my business partner is now left just absolutely obviously it's done, uh, had issues in the partnership, but on top of, of it, he has a friendship that's essentially been destroyed. So it's all of those things mixed together. So he is saying the same thing you're saying. And so he's on your team. He's not on their team inside your business. Correct.

Okay. All right. Well, that doesn't then, I mean, all it does is it just brings up more emotion for him if you decide to deal with this. It sounds to me like you've already made the decision to walk. Because, I mean, it's a million dollars. You know, it's a lot of work and time and effort, and it was the sale of a business inside of it as well.

And so it's just... I assume you've tried any kind of backdoor direct contact negotiating things before we're even talking about this, right? Yeah, yeah. Yes, and it's been met with just belligerents. Yeah. And these people are powerful. show. Yeah. Okay. So they're a large actor in the space. If you never do business with them,

is a room for you? Yes. If we never do, I'll never do business with them anyway. That's what I mean. If we go after them, it's just. No, I mean, it just bleeds over into stuff then. I understand that. But I'm saying, if you say, okay, I'm going to write this off so that I can stay in the space, is there enough room in the space to make it up? Otherwise, burn it to the ground. Got it. Yeah, there's enough room. Okay.

Yeah, this has been going on for about a year. So we've been pivoted away from them for quite some time. Well, and as you know from lawsuits, the problem with them is not the actual suit itself. It's the distraction. Right. While you screw with this, you could have gone and made $3 million. Right. Because it's taking up the emotional space and bandwidth of you and your team and your

partner while you, fret over it and argue with yourself about it in the shower and every morning on your run and all of that spoken like somebody who's done this okay it takes up a lot of bandwidth uh and so it's kind of the opportunity cost on your intellect yep and so i let it go on all of those bases but if you're going to let it go then you guys all have to sit around and really let it go period. I mean, because you want your bandwidth back. Right.

We're not going to really not, we're not going to spend another calorie on these morons. What you would have spent in calories and brain calories and time and creativity, you probably could have gone and made $3 million while you did that. If I were in your shoes listening to you, I think you've made the decision to let it go because that is the intellectual, wise, noble, correct thing to do, but it still sticks in your crawl. I don't blame you for that, but if you're going to get the benefit of the increased bandwidth by not dealing with it, you've got to make sure you make a spiritual decision, an emotional, psychological decision, organizationally and inside of will to let it go the rest of the way.

So that you spend all your time on your runs in the morning thinking about new deals, not old deals. Do you, do you have a meet, would you recommend having a meeting as the entire team? Yes. It has, it's true everyone. Yes. Everyone. They feel it on you when you walk in the room after you've been on a call about this. Yeah, it just, you know, you're pissed off and it emanates off your body when you walk in the room.

I know I've done it. I mean, it's just, it's real. And so it takes up too much bandwidth. That's why people settle these things when they shouldn't be settled as a matter of, principle. They settle them to get them out of their life. And sometimes it's because they're wusses. But in your case, you're saying, I want it out of my life. I'd rather have a good life, a creative life, a life that's forward-looking. And we'll just, when we know that we're not going to step within 10 miles of these bad actors, these are bad men, they're evil men,

and we're not going to do business with these evil men and women. And they, they like, they make up stuff, and they don't pay their bills. And we're not going to do, you know, And you've really got to shut it down. And, you know, I'll be honest with you, it's not easy to do, but I've spent some time doing it myself, and it's worth it. It's kind of in a warm and fuzzy thing, and it's not that at all. But it's almost like the benefit of forgiveness is as much for the person who forgives as the one that they forgive.

Ooh, forgiveness on this one. I think I can move past that, but I don't know. No, I didn't say reconciliation. I didn't say reconciliation. I said forgiveness. Okay. There you go. Fair enough.

I can forgive someone that steals my wallet, but I won't leave it in the room with them again. I understood. That's a difference in forgiveness and reconciliation, okay? And so you don't have to be reconciled to a dad-blame crook. I know where they are. They lie. They cheat. They're a pathological liar.

Bad actor. They'll get theirs. I'm moving on. I'm not going to be in the same room with them again. And if I am, it's going to be at a distance with a 10-foot pole. and I'm going to not ruminate on this. I'm not going to drink a bottle of poison every morning and wonder why they're not dying when I'm the one drinking the poison.

Spoken like someone that's been here. I can hear that because that is what it feels like every day. Yeah. Well, that's the essence, you know, from a spiritual perspective, that's the essence of forgiveness. Because it doesn't have any do with the person who committed the atrocity, it has to do with you. And so, yeah, it's, you know, I can't keep drinking poisoning and hope they die. So, yeah, I, I, man, the more I talk it through with you, the more I'm on your team, and the more I wish I could tell you I'm good at it. I'm not good at it because I'm a redneck hillbilly.

I go, I want to burn it to the ground. And I got a couple of them right now. I'm burning to the ground on principle. I'm going to spend whatever it takes to beat their butts because they're wrong and I have to set a precedent on these. And I'm, way deep into it. I'm going to finish those. A couple of the others I've had to deal with, I just let them go. And I chose my battles, in other words. And this one, what you're doing is choosing your battles. So, yeah, me and you both, brother. But, yeah, go spend your money, your smile, your time, your creative energy, doing what you've done up until this one speed bump came along. And that's doing wonderful things to help people and grow their businesses and

serve them with a good lawyer. And, man, it's just go do that. and let these morons go. Yeah. I'm with you. That's where you wanted to go anyway. We just talked it through together, and I'm in agreement with you. So good stuff, dude. Good stuff.

Wow. Way too authentic on this podcast today. But, oh, well, this is the Entree Leadership podcast. Welcome back to the Entree Leadership Podcast. I'm Dave Ramsey, your host. Josiah is in Redding, Pennsylvania. Hi, Josiah. you. I'm doing good, Dave. How about yourself? Better than I deserve. What's up?

Hey, so I am a 50% partner in a automotive repair business in Oli, Pennsylvania. And we have a team of five. Last year we had gross revenue about 550. We're aiming to break 800 this year. And as I'm coming out of the treadmill stage, I looked up and realized that I don't really have a contingency plan in place in case my partner or I, something happens, and I was just kind of wondering how to set that up, what that looks like, and what it should be doing. Okay, cool. You said you're 60%? He's 40? 50. 50. 50. Okay. Okay. All right.

You need two things, and you need to spend a little bit of money on them, but not a bazillion dollars. Okay. You need to get an attorney to help you, and here's your budget. Tell him your budget is a max of $1,000. Okay. And I want him to draft you a general partnership agreement. Is this an LLC by chance? It is, yeah.

Then a draft an LLC agreement that has the same features as a general partnership. It's not technically a general partnership. It's technically an LLC, but these are the terms of the LLC. see. You got a pencil handy? Yes. Okay. So the things you need to address, these are the reasons I don't recommend partnerships, but I want to help you anyway. The things you need to address are what we call all the D's, like D is in David. Okay? The first one is the one you called about, death.

Sure. The second one is worse. Disability. Yeah, one of you is still alive but can't work. Ooh, hard to deal. with. Yes. Drug use. How are you going to separate? He starts doing cocaine.

Default. He walks out of the business, but still owns 50% of it. Okay. Disinterest. Same thing. Decides he's not interested anymore. Divorce. You don't want to be partners with his wife.

Even if the judge said you are. Understood. Okay. These are the Ds. What I'm talking about is all the negative, horrible things that happen in life, and all of those could hit either one of you, and the one you thought about that caused you to call was death. Yeah, well, death and I didn't think about divorce.

Okay. And that side of it, but yeah, not really, though. Well, and the other one would be something along the lines of retirement. How do we end this? So the point is that you start these things without an agreement, and it blows up and it's turned into a dad-gum actual business. business with 800K top line. Way to go. Congratulations. But you, you know, you never entered it thinking how it might need to end. No. And you have to, you have to think about how you need

to end it. And so each of those Ds and maybe some others that the attorney can suggest need to be addressed what happens in the event of divorce in the agreement. And you guys agree on that and sign it in advance. Okay. Okay. And you, you, you, you, you, you, you, you, you, You can make the terms of the LLC be no one other than one of us can own stock in this LLC. So in the event of divorce, his stock has to be turned over to you or he keeps it, but it can't be turned over to someone other than one of you. Okay. Not your kid, not anybody else.

You can go back and change it later, but for now that's what it is. Okay. So that's an example. Now, then the second thing you need to do is part of this is what's called a buy-sell agreement yeah which i think i felt some of that that's i hadn't thought of the first part yeah the buy-sell agreement is you get some term life insurance and go ahead it's not that expensive how old are you two uh 28 oh easy okay are you both healthy yes okay just pick up like a million bucks each okay and in the agreement that we talked about a while ago put a formula for

giving a valuation of the company upon death So if you die three years from now and it's running a million two around their top line, what value are we going to place on the company? And I'll give you a suggestion, okay? Okay. Four times net profit after all salaries, including you two, are paid. Okay. And so let's say you made $100,000 that year net profit on that formula after you two were paid a salary.

you still made $100,000 net profit. You took 50, he took 50 as additional profit beyond your salaries. One of you died that year. Then you'd have a $400,000 settlement with his widow if he died. You'd have a million-dollar life insurance policy on him, and you are the beneficiary of it, and you're required in the buy-sellary agreement to use that money to buy out his widow.

So he dies. You get a million dollars from the life insurance policy. You're required to use it to buy his. widow out at 4x of net. That's a buy-sell agreement. And would, since I know we did some that you don't like, I actually own the property that the business is on. Same thing.

Same thing. Same thing. It needs to. It's probably a separate agreement, but probably has the same terms. Okay. Fair now. You would buy out the business for X multiple of net profit, and you'd buy the property out for 50%. are really, it should be, if you sold the property, you would not net 100% of appraisal.

You would net about 88 or 90% of appraisal after expenses, right? Sure. So her half would be worth half of 90% of appraisal. Sure. That makes up. Yeah. My estate plan is set up where if some of our real estate, if one of the kids wants to buy the other one out on the lake house with some other stuff, or they want to do a deal,

they do it at 80% of appraisal. Because if they all just sold it and piled up the cash, that's what they'd have. That makes a lot of sense, sure. So 50% of 90% or 45% of appraisal or something like that, and a multiple of net, and you can buy the real estate for X and the business for Y, and as a matter of fact, you're obligated to do so because you're the beneficiary of this life insurance policy, and vice versa. Okay.

And that's a very standard thing that's used in businesses, small businesses in particular, family businesses sometimes to buy out the other one in the event of death. Much more difficult in disability. And would there be, like, should we be looking into long-term disability insurance for both of us just in case? Yes, but it's going to be expensive in your world because you're turning wrenches. Okay. If you fly a desk, it's less expensive than if you wear a blue collar. Sure. Because it's based on your job description more than it is your age and health,

where the life insurance is cheap because you're 28 years old and you're healthy. Yeah. The disability insurance won't be that cheap. But check it out. Get with an independent insurance broker and check it out. And you may want to put that stuff in place anyway, and you can use some of that money. You won't be lump sum, but you'll have some monthly money there to support him. because he's no longer going to be getting a salary,

and that takes some of the pressure off of him owning half of the business. Yeah. Sometimes people say if you can't participate in the day-to-day in the business, you're no longer an owner, you forfeit your stock. Sure. That's pretty harsh, but that's one way of doing it. It's clean. Because it's okay.

Like the first two weeks he's sick, you want to help him and take care of him. 25 years later, you're not going to be real thrilled doing that anymore. Yeah, understood. Being forced to do it. You may want to choose to do it as an act of grace, mercy, and generosity, but you don't want to be forced business structure-wise to do that odd infinite and forever and ever in perpetuation. So, yeah, that's the thing. So address the Ds in the LLC agreement, do a buy-sell, put a formula in place, fund it with term life insurance. Now, the dad-gum insurance people will try to get you to buy whole life.

Don't do it. Buy yourself a 20 or a 30-year level term insurance from Zander. They'll set that up for you. It's real easy to do. It's very standard. Very standard process here. It's done all the time. And all of these are the reasons that I don't do partnerships.

Because they all have an end and it's usually messy. You're in it. So I'm not picking on you, Josiah. But if I'd have caught you ahead of time, I'd have structured your business different than 50-50. anything with two heads as a monster, the only ship that wants sales a partnership. These are our sayings around here. But it's because you're, you know, any one of these bad things happen, you've got a freaking mess on your hands.

And you've got no clarity right now. You need the clarity at least. And that'll help you get there. So good stuff. Hey guys, remember better a wary warrior than a quivering critic. Leaders serve. Leaders are active, not passive. They act on principle, not appearances.

This world needs more high-quality leaders. please choose to lead. I'm Dave Ramsey, your host. Thanks for listening to the Entree Leadership Podcast.